Brazil on Brink of Rebound as Investments Resume, Temer Says

Updated on
  • Acting president says Brazil less strong with interim status
  • Temer says could skip G-20 if Rousseff impeachment not voted

Confidence in Brazil is recovering as investors return and Congress prepares for the final vote on the impeachment of Dilma Rousseff, Acting President Michel Temer said in an interview with foreign correspondents.

Temer cited $4.3 billion in foreign investment in the oil and power industries as well as Brazilian bond issues this month as evidence of an initial recovery in Latin America’s largest economy. Rousseff’s impeachment should be concluded in the Senate on August 25 or 26, further boosting investor confidence, he said.

“The world needs to know who is the president of Brazil,” Temer said in his office in the presidential palace in Brasilia. “This interim situation doesn’t give the Brazilian state the same strength.” 

Temer said he could cancel his participation in the meeting of the Group of 20 countries, scheduled for Sept. 4-5 in China, if the vote on Rousseff’s impeachment is delayed. Both foreign leaders and investors need to know with whom they’ll be dealing during the next two years, he said.

Hopes that Temer will adopt market-friendly policies and rein in a near-record budget deficit have fueled a rally in Brazilian financial markets since he took over from President Dilma Rousseff, who was suspended in May to face an impeachment trial in the Senate. Congress has approved his central bank nominations as well as revisions to this year’s budget target that give him more room to maneuver on spending.

The Bovespa stock index rallied more than 30 percent this year while the real gained 21 percent, more than any major equity or currency market in the world. Investors expect not only that Rousseff will be definitively ousted but that Temer will obtain Congressional approval for his constitutional reform proposal to cap government spending.

A widening budget deficit under Rousseff’s administration cost Brazil its investment grade credit rating last year, and Temer said his government is working to resolve political and fiscal imbalances that triggered the downgrade.

“Our hope is that the government, with the measures being taken and support from Congress, can regain credibility,” Temer said. “If we can restore this, it’s not improbable that risk agencies will change our classification.”

The government plans to send a proposal to reduce pension expenditures to Congress before municipal elections in October if an agreement can be reached with labor unions, Temer said. He said that reforms of both labor laws and the pension system may not be voted in Congress until next year.

Economic growth prospects have improved on the back of recovering business and consumer confidence. Brazil’s economy will grow by 1.1 percent in 2017 after contracting for two consecutive years, according to the latest central bank survey of analysts.

The Senate will resume next week the impeachment process against Rousseff on charges she illegally financed government spending to cover up a widening deficit. Temer supporters say they have more than the 54 votes necessary to permanently remove her from office.

“Every time there’s an institutional issue like impeachment, there’s concern from the outside about what will happen,” Temer said. “This will all be resolved with time.”

(Updates with G-20 summit in fourth paragraph.)
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